You know, I think it depends on the company. Lee Iacocca, Jack Welsh, Mike Bloomberg, Bill Gates, Michael Dell and Steve Jobs are well respected CEOs. On the other hand, the senior mangement at my last job were essentially a bunch of talentless frat guys who happened to get into an industry as it was taking off. There’s nothing particularly brilliant about most of them. They promote based on who their drinking buddies are and that’s basically it. Basically, new businesses require dynamic geniuses. As the businesses get bigger, they become slower and more beurocratic. In a mature industry with little outside competition, just about any idiot can be the CEO. The business more or less runs itself at that point.
You don’t throw the baby out with the bath water. We don’t want our entire economy to go under. As the cliche goes, some companies are too big to be allowed to fail (which is a whole other issue we should probably be thinking about). You can’t stand aside and watch these executives receive the full consequences of their poor decisions because those full consequences would have too much collateral damage.
Part of fixing the problem is fixing the problem. There’s no point in giving these businesses money if they’re just going to jump off the same cliff again. They failed - obviously they made mistakes and they need to change something. Cutting exorbitant executive salaries is one of those changes.
But don’t build a strawman. Who’s saying these executives are “worthless or worse”? The proposal on the table is that they get an annual salary of $500,000. By that standard, we’re apparently saying that they’re worth more than everyone in this thread combined. A six-figure income is hardly the equivalent of the guillotine. Hell, I’d consider it an honor if somebody said my job performance was worth half a million dollars and you wouldn’t see me threatening to switch jobs over the insult.
It will serve at least one valid purpose. It will link the corporate failure to individual loss. Too many executives appear to gauge success by their personal income - “The company may have lost billions last year but I got a ten million dollar bonus anyway so it was a good year overall.” This proposed cap creates a linkage - when the company takes a loss, the guy in charge takes a loss.
If so, I stand corrected. The salary cap proposal will serve two valid purposes. It’ll also separate the companies in real need from those that would just like some free money.
Just out of curiosity, do people think that the CEOs of these investment banks get the bonuses, or do they realize that pretty much everyone in an investment bank gets some sort of bonus? And does that make a difference?
Except for tax cuts, which have clear, direct effects that are always positive.
Not just by themselves, no, that would be a silly thing to say. But in tandem with a ruinously expensive military adventure, and you’ve got a formula for permanent economic bonanza.
And if targets for such adventure should turn scarce, we always have Canada, with the largest known reserves of strategically vital whale blubber.
No we’re just assuming that the CEO’s is a few million whereas the mailboy’s is a few hundred.
Exactly.
I’m guessing that most of the employees of these businesses did not receive multi-million dollar bonuses. But in the interest of fairness, we’ll set their annual salary at $500,000 so they can experience the same pain their CEO is feeling.
Investment banks typically tie a large portion of their employees compensation to their annual bonus. Obviously, the higher up the ladder you are, the more directly you are involved in their core business, and the more successful your group is that year the higher your bonus. Even still, relatively junior associates can make tens or even a few hundred thousand in bonus.
The specific problem I have with banks using bailout money for bonuses is that those bonuses are supposed to be contingent on how successful your group was the previous year. Clearly these banks were not successful and it’s not unheard of for bankers to not get bonuses in a bad year.
In general, people have a sense of entitlement about their compensation. People still bitch about 2% raises and no bonus when they should be thankful they have a job. If they made $120,000 last year they expect to make $140,000 or more next year. That’s why bailouts don’t work IMHO. The management will just take whatever money they think they are “owed” and not fix any of the problems.
To paraphrase you, the only way we’ll go after Canada is if we’re attacked by Mexico.
These banks have not just had a ‘bad year’. The Bad Year was a culmination of many ‘bad’ years whose true nature was not recognised because assets were not priced correctly. It was all one big illusion at best or more probably a deliberate Exxon style con.
That is why every bonus should be repaid. And people imprisoned.
And from everything I’ve ever heard about Dell or Jobs, they aren’t exactly backslapping frat boys. Dell worked for years - and hired other people - to help him become personable - being a leader in the sense of “being someone people would follow” was not a natural state for him. And Jobs is charismatic and talented, but a ego driven jerk.
While I certainly have a perspective on this issue, I would rather just tell a story. It is no substutite for logic or data, but I thought it was kind of interesting.
One of my best friends is a senior associate at Great Big NYC Law Firm who represents large corporate clients in structured financial transactions. We got to talking about this last night, as he interacts directly with extremely senior executives on a regular basis due to the size and sensitivity of the transactions he manages. Apparently he had several conversations with his biggest clients about this. To a man, all of them said they would prefer to run their companies into the ground than accept a bailout with a $500k salary cap.
If Obama’s strategy is to punish the greedy losers into insolvency, it’s brilliant.
Well, to a man these people should be capped in a more final sense. Bunch of sociopaths.
And it’s extortion. “I’d rather drive the company into the ground” is not the same as saying “I’ll quit and find another job”. It’s saying “Give me more money or I’ll wreck up the place”.
The ones willing to make sacrifices will be saved; the rest will fall. This sounds like the market at work to me.
Actually the companies will fail taking a lot of jobs with them. The employees will go down because of an oversized sense of self importance at the top.It has nothing to do with the viability of the enterprise itself.
But the demand doesn’t go away, nor does the skilled labor. Companies that know how to run their businesses can do very, very well when their competition fails.
Maybe we dismissed the guillotine option too quickly. I’m not saying we’ve reached the point of actually decapitating any CEO’s. But seeing us build one might help them refocus their priorities.
I’m confused here. Wouldn’t the magic job making machine that originally formed those companies just do it’s thing and create a new business (better, to be sure)? Perhaps the new magic job maker thingy will also staff the new company with some of the horde of low paid but very talented CEO’s in waiting, ehe?
-XT
I don’t believe it was a “con”. I believe it was incompetance. And incompetance should not be rewarded.
I see a lot of these people. They are all cogs in some big financial machine passing reports and analysis to each other or to traders and salesmen who then congradulate themselves on how brilliant they are when in reality they are full of shit. Sometimes I think they actually believe their own hype.
Here is a perfect example of what I call the Corporate Fantasy mentality. At my old job, we were on some corporate boondoggle where they flew the whole group out to some team building retreat crap (that in and of itself total bs). Yeah, it’s fun and all, but it serves no useful business purpose. So one of my coworkers is like
“These are great because you get to network with our colleagues from all the other offices.”
Me “Name three people you met this week.”
At which point he became very annoyed and defensive.
Basically a lot of organizations build these elaborate fantasy worlds for themselves to live in. And it can take the form of anything from believing the Core Values, or that idiot down the hall is a “real gogetter with upper management potential” or that their vaporware software will be a viable business in a year or that you deserve a million dollar bonus.